Business World

Monday 20 August 2018

Skechers shares hit as shoemaker struggles to keep pace with demand

Shares of shoe and apparel retailer Skechers plunged as much as 28pc last Friday - the most since 2015 - after the company forecast sales for the coming quarter that missed projections (stock picture)
Shares of shoe and apparel retailer Skechers plunged as much as 28pc last Friday - the most since 2015 - after the company forecast sales for the coming quarter that missed projections (stock picture)

Merchandise from Skechers is selling fast - maybe too fast. Investors are sceptical the company can keep pace with demand and simultaneously keep costs under control.

Shares of the shoe and apparel retailer plunged as much as 28pc last Friday - the most since 2015 - after the company forecast sales for the coming quarter that missed projections.

The outlook partly reflected products selling out and Skechers's inability to quickly replenish inventory fast enough because of distribution bottlenecks and higher costs associated with fixing them.

"We were so hot in the marketplace - especially in the US and Europe - they took everything that we had available for the first quarter," chief operating officer David Weinberg said on a call with analysts last Thursday. "Nothing slipped into the second quarter."

The company pointed to unusual weather in the US and Europe that disrupted the timing of shipments, while rapid growth in areas such as China outpaced the company's ability to maintain supplies. Skechers's distribution business in the Middle East was also hurt by instability, Weinberg said.

Skechers has sidestepped much of the pain that has afflicted broad swathes of the retail industry. Unlike many peers, the company has reported positive same-store sales every quarter since the beginning of 2013. But rising costs due to aggressive expansion, coupled with a short-term outlook - Skechers only provides guidance one quarter in the future - has caused concern among investors, according to Sam Poser, an analyst at Susquehanna Financial Group.

The company sees sales of $1.12bn to $1.15bn in the second quarter, it said on Thursday. That missed the $1.16bn midpoint of analysts' estimates. While first-quarter sales surpassed expectations, jumping 17pc to $1.25bn, expenses also surged 23pc to support international growth and store operations.

Skechers said that men's sports shoes and women's sandals were among the products that saw strong demand in the period.

Communication with analysts and investors "has been poor, in our view," Poser said in a note to clients. While management alluded to a strong third quarter, "with no annual guidance reference point to gauge the magnitude of the recovery, investors will likely put more emphasis on near-term trends and adjust expectations down."

Bloomberg

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